US-China trade war is helping to boost use of yuan in international transactions

2018-10-30 11:22:52 View:

The trade war initiated by the United States is actually helping China achieve one of its coveted long-term financial goals - the greater use of its currency, the yuan, in international commerce and financial transactions.

As of the end of the second quarter, overseas institutional and individual holdings of yuan-denominated financial assets totalled 4.9 trillion yuan (US$717 billion), according to ICBC International, the Hong Kong investment banking arm of Industrial and Commercial Bank of China, one the country's big four banks. Within that total, the share of yuan-denominated stocks and bonds as a percentage of total assets held by global investors increased to about 2.5 per cent and 3.0 per cent, respectively.

In addition, the holdings of yuan assets by global central banks increased for a third straight quarter to 1.39 per cent in the first quarter this year, edging up from 1.22 per cent at the end of 2017 and 1.08 per cent at the end of 2016, when the International Monetary Fund began reporting central banks' yuan allocations after the Chinese currency was included in its Special Drawing Rights currency basket in November 2015.

The yuan has a long way to go to match, let alone replace, the US dollar as the world's favourite transaction currency. But the pressures brought on China and some of its trading partners by US sanctions have caused some to rethink their reliance on the greenback.

Despite the trade war and the sharp depreciation of the yuan against the dollar this year, there are signs the use of the yuan on a global basis is starting to pick again.